Back when I worked in marketing with Santa Fe, we would have purchased the data as you say (typically from Reebie). But times have changed - look who’s now filling up their trains. With the type of relationship BNSF now has with Hunt, Schneider, Swift, Hub, etc. etc., all they need to do now is email them a proposed schedule and ask how much volume they’d have for it. In fact, if customers like those won’t commit the necessary volume, BNSF would be foolish to push ahead regardless, because they lack the sales capacity to do it on their own, and in fact would be competing against those customers. It’s not about cojones at all; it’s basic marketing 101. BNSF is now unequivocally a wholesaler, not a retailer.
So BNSF really doesn’t have a marketing department. By becoming a contracted supplier of services to the aforementioned firms, they’ve cut themselves out of a large profit center in exchange for lower internal expenses for marketing.
CNSF nailed it. The railroad’s intermodal department is now a wholesaler. They leave the retail selling up to JBH, Hub, Alliance, Clipper, etc. Those folks know and understand the markets.
Any amount of purchasing the data will not do much good. The truckers understand their markets, the rails understand theirs. The two have a little overlapping commonality, but not as much as one would image.
Lets go back to the meat train. Who handles that freight now? My guess is Randy Marten’s fine outfit handles quite a bit (Marten Transport). Take a look at the NS TOFC trains originating out of Chicago such as 20E, 20K, 22W, and others. Plenty of Marten trailers on those trains.
Perhaps CN should run a meat train to Chicago. Perhaps they will in the future. My guess is they would need a minimum revenue per train to handle such a train. How will that develop? That almost must be a direct negotiation with the truckers rather than the meat people.
Ed
Ye gods, not me! I was thinking not of Meat Train but of Cold Train, the historical operation that had to shut down because BNSF congestion made pickup of its cars and then delivery too uncertain – that has nothing whatsoever to do with your work on meat trains other than it was discussed in some of the same threads ‘back when’.
I do think that railroads have become far more organized as ‘wholesalers’ in intermodal because, just as in the mid-1800s with the rise of express lines, they have to support a whole complex infrastructure of sales and service to get more individual-shipper traffic, much as if a railroad wanted to compete with FedEx for a share of the intercity express service that currently goes by land instead of by air to and from the central hub. The additional revenue that can be obtained by getting the contract to ship the goods instead of subcontracting to move them very simply, in bulk slots on often-already-scheduled consists, had better outweigh the complexity and risk so added, and there is always the risk that the railroad’s organization won’t be able to execute, or will not have the reputation or the advertising budget or whatever, to be seen as a full competitor on the customer’s perceived merits.
I have agreed since the first that greyhounds’ systems are good, and the necessary railroad organizations to search out and then keep a good amount of meat business in various lanes represents just the kind of specialized knowledge and achievable personal networking/connections within an industry that would succeed over even the most well-heeled general shipping companies.
Having said that, I don’t think the
One problem I see is that many railroads prefer to think in terms of train load quantities. Only 50 containers per day - not worth bothering about because “we” might have to think. They could catch a ride part way on an already existing mixed freight but then “we” would have to run that train reliably and that is too much trouble. “We” might have to think. Let’s create a power point presentation instead since we understand that better than railroad operations from our college courses. Looks pretty, impresses everybody in the office, and we don’t have to get our boots dirty.
Running a unit train of intermodal between a single origin/destination pair is obviously the most efficient but enough traffic to justify it will not somehow magically switch from its existing transportation providers all at once. Given the rather checkered reputation the railroads have earned for inconsistent service (unfortunately still largely the case), a radical cultural change at the management level would be required to recapture it.
There is lots of traffic out there to be captured but it won’t happen easily. Action rather than dreaming in the RR HQ’s is the missing ingredient.
John
Okay, maybe I shouldn’t have used the shorthand term “basic marketing 101” and assumed everyone here knows what I’m talking about. My apologies.
First of all, there’s nothing foolish, shameful, or unprofitable in choosing to be a wholesaler. The separation of wholesale from retail is widely established practice common in many, many industries, including services. Your insurance, for example - do you buy that direct from the policy underwriter, or through some sort of broker or other third party? Or check your local bank or credit union - do you think their check clearing or electronic funds transfer services are designed, built, and staffed entirely in-house? In general, wholesale/retail marketing structures emerge naturally, when market conditions favour specialization around each activity. Everything the railroads “gave away” when they decided to go wholesale, the truckers also “gave away” when they chose to become specialized retailers. JB Hunt and UPS may have enjoyed complete control of their destiny at one time, but they are now hugely dependent on the railroads, with massive investments in intermodal. Back in the '90’s, both sides made a calculated bet on cooperation. It resulted in a massive shift of traffic from highway to rail, improved the profitability of intermodal for the railroads, and drove truckers that couldn’t make the shift out of business, making the successful truckers even bigger and more successful.&
CSX Intermodal is trying to operate a national network
Thanks for pointing that out. I knew they had been trying years ago but haven’t paid close enough attention to realize they’re still at it. I hope it’s working for them.
I wonder what greyhounds’ answer would be? I think many of us in other fields do understand the difference between retail and wholesale, though my terminology was clear enough. The rails appear to many to have ceded large and profitable sectors to others in favor of cost-cutting to haul bulk and trainloads. Given some fairly serious changes outside the rails’ control, they are faced with fewer carloads and unused capacity. Those are the underlying issues behond the OP’s thread, IMO.
CNSF, your comprehensive post (Wednesday, October 19, 2016 9:05 PM) is outstanding. I agree with your conclusions unreservedly.
As is my wont, I offer related data:
First, my calculated Intermodal Operating Ratios, using 2015 “R-1” STB data, without assigning any “G&A” expenses (which would have included Marketing & Sales, among other overhead):
BNSF: 0.56
CSX: 0.97
NS: 0.88
UP: 0.77
To (not incidentally) address BaltADC’s most recent post, CSX’s IM performance is very poor for a number of very clear reasons. Fundamentally, NS completely out-negotiated them in the Conrail split: 1. CSX has no domestic double-stack capability on the East Coast, and 2. NS has a distinctly superior Chicago-New York route. (Ironically, Jim McClellan, the NYC alum, looked with an analytical eye at Albany vs. Altoona, and chose wisely for NS.) 3. CSX, because of its East Coast clearance problems, and its poorly conceived North Baltimore facility, runs a surprisingly high percentage of its IM traffic single-stacked in double-stack well cars. The inefficiencies are self-evident.
Next, consider the relative IM investment bases in the light of the Operating Ratios:
Containers Chassis
BNSF &nbs
There, fixed it[<:o)]. But c’mon man you’ve been on the inside, ya gotta admit there’s at least a few guys we work with/for who fit that bill[banghead][sigh][8D].
I understand the 1st double stack capable Virginia Avenue Tunnel bore is supposed to be operational in January 2017. With that CSX will be able to handle double stacks from Southern Mid-Atlantic ports to the West.
Baltimore’s Howard Street Tunnel is the hold up in being able to handle double stacks on the I-95 corrid
I find all of this discussion and data presentation fascinating. Have the rails dropped the ball in wholesaling their intermodal? I do not think so. How far into the retail operation should the rails go? Compete vs JBH? Compete against UPS and FedX? Should I arrange for NS to deliver my wife’s holiday purchases?
I spent the last hour looking at four companies…JBHunt, Marten Transport (temperature control trucking), Hub Group, and Canadian National. All four provide transportation services with some overlap…but not very much.
Here is what Morningstar had to say about JBH…“Hunt is an attractive source of cargo because of its ability to aggregate fragmented demand across an immense pool of customres looking to capitalize on multimodal capabilities.” Wow. That is a great description. Are the rails capable of providing that? I do not think so. Hence the wholesale application.
Lets take a quick look at a few numbers:
JBH generated $6.188B in revenue in 2015 on $3.637B in assets and pulled $427M down to net income(6.9%) . ROE was 34.1% and ROA was 12.15%. Pretty efficient. Their fleet consists of 80,000 containers and 5000 tractors.
Marten Transport is a refrigerated carrier and their trailers are often seen on TOFC trains. They generated $665m in revenue on $632m in assets with a net income of $35.7m (5.4% of gross). ROE is 8.97% and ROA is 5.9%. Not nearly as efficient as JBH.
Hub Group is the second largest competitor of intermodal services to JBH. Their 2015 revenue was $3.53B on assets of $1.30 with a net income of $70.9m (2%).
Canadian National railroad generated revenue of $12.6B on $31792B of assets (HUGE amount of assets tied up in ROW) with a net of $3.54B (28% profit margin). ROE at 24.9 and ROA at 10.4%.
Obviously JBH is very good at what they do, in fact all
Triple Crown operated “single line” service in the Minneapolis to Atlanta market. I just can’t imagine there’s all that much volume in that lane. There just isn’t that much truck traffic on I-65/24/75 compared to I-81 and I-85.
[quote user=“MP173”]
I find all of this discussion and data presentation fascinating. Have the rails dropped the ball in wholesaling their intermodal? I do not think so. How far into the retail operation should the rails go? Compete vs JBH? Compete against UPS and FedX? Should I arrange for NS to deliver my wife’s holiday purchases?
I spent the last hour looking at four companies…JBHunt, Marten Transport (temperature control trucking), Hub Group, and Canadian National. All four provide transportation services with some overlap…but not very much.
Here is what Morningstar had to say about JBH…“Hunt is an attractive source of cargo because of its ability to aggregate fragmented demand across an immense pool of customres looking to capitalize on multimodal capabilities.” Wow. That is a great description. Are the rails capable of providing that? I do not think so. Hence the wholesale application.
Lets take a quick look at a few numbers:
JBH generated $6.188B in revenue in 2015 on $3.637B in assets and pulled $427M down to net income(6.9%) . ROE was 34.1% and ROA was 12.15%. Pretty efficient. Their fleet consists of 80,000 containers and 5000 tractors.
Marten Transport is a refrigerated carrier and their trailers are often seen on TOFC trains. They generated $665m in revenue on $632m in assets with a net income of $35.7m (5.4% of gross). ROE is 8.97% and ROA is 5.9%. Not nearly as efficient as JBH.
Hub Group is the second largest competitor of intermodal services to JBH. Their 2015 revenue was $3.53B on assets of $1.30 with a net income of $70.9m (2%).
Canadian National railroad generated revenue of $12.6B on $31792B of assets (HUGE amount of assets tied up in ROW) with a net of $3.54B (28% profit margin). ROE at 24.9 and ROA at 10.4%.
Obviously JBH is
Schlimm:
I beg to differ…return on assets is critical. That ROW, or containers, or locomotives, or whatever is an item which must be a part of the system for it to operate. Without the ROW, there is no railroad, unless it is a leased situation. My point was to show the enormous amount of assets which are required by the rail industry in order to turn a dollar of revenue…2.5 to 1 for CN and similar for others.
Regarding the comparison to home delivery, yes I did take it to an extreme and intentionally so. Compare the home delivery to arranging and picking up a truckload of windows from Northern Minnesota and delivery to Atlanta. Similar concept, different scales.
I didnt really complete my thoughts due to capitalistic demands, but JBH and Hub do a very good job of finding movements of freight and then leveraging their relationship with the railroads. That is work that rails just do not find meaningful. Why? Because of the Chicago to Newark, NJ moves that fit into the intermodal system there are many Chicago to Olney, Il. moves. Shippers today want logistics companies to solve their problems and one of those problems is to manage their diverse lanes. The rails just cannot do it.
I suggest you watch an intermodal train and study the containers and trailers being handled. You really do not even need to leave the comfort of your home. Check out the Chesterton, In. railstream and watch teh NS parade from 6am to 8am or the eastbound moves from 1pm to 4pm. These trains have different destinations and functions based on the needs of their customers - JBH, Hub, Swift, CR England, UPS, FedX, Alliance, Clipper, and many more. I havent even discussed the international movements.
Ed
You got me there, Dude, I can’t argue with that! I find though, that you rarely see all the possible bad traits packed into one person. I’ve seen dumb but genuinely kind and decent, lazy but cunning, hyper-intelligent yet without a shred of common sense, brilliant but insufferably arrogant and/or psychopathic, and so on. And I will also point out that the two railways I worked for were, at the time I happened to be working there, considered to be possibly the best managed in the industry. Haverty, Krebs, Tellier - I did luck out, getting to work under those guys.
Greyhounds is perplexed. How did this discussion get to where it is?
First, let met clearly state that CNSF knows what he is talking about. I disagree with him on the role of the railroads’ marketing departments, but that’s it. I do not believe the railroads should widely retail intermodal services. There are certainly special situations where a direct sale is the best answer, but those are exceptions.
JB Hunt is the best in the world. It would take decades of dedication, hard work, and lots of $$$$ to even get in the same league. The JB Hunt/BNSF and JB Hunt/NS partnerships provide the benefits of door-to-door intermodal pricing and service. (The rail revenue portion of the rate is adjusted as required, it’s not a fixed terminal to terminal component. That’s critical.) A railroad could do the same with retail service (see CN in Canada), but there’s no significant reason to go through the effort and expense of building a retail operation when the same benefits can be largely achieved through partnering with a class outfit such as JB Hunt.
What I strongly object to is turning the railroad’s market development and market knowledge over to the partner truck line. As CNSF said, it’s very common to have a product/service delivery chanel that involves different manufacturers/wholesalers/retailers, etc. The chanels are set up this way because it’s the most efficient, low cost, way to deliver the product/service to the end user.
But.
There is always conflict in the chanel. Each entity has its own differing goals. As long as this conflict doesn’t get out of hand, it’s good. It keeps everyone on their toes. Each entity in the chanel has power. You don’t want to cede power to your partners as they will often seek to optimize the chanel for their own
Good analysis. Thanks
Greyhounds: I knew you could take this excellent discussion beyond the obvious. Thanks!